Kalshi Opens Up Tokenization Through Solana
Kalshi event contracts can now be converted into digital tokens on the Solana blockchain. The partnership with Solana allows Kalshi to act as a more direct competitor with Polymarket. But does this new leap into tokenization pose issues that may place the company further in state regulators' crosshairs?
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Kalshi Says Tokenization Is "Endgame"
Tokenization was always the goal for Kalshi. According to the company's announcement this past week, they claimed that tokenization was the "endgame."
Tokenization is the process of creating a digital asset out of a financial asset, in this case, an event contract.
The tokens allow traders a new way to trade their event contracts. The difference is the anonymity of the trade. Through tokenization, sensitive trader or trade information is replaced with a new token.
The goal of tokenization is to try and entice crypto-traders to Kalshi's platform. A lucrative area that totals $3 trillion was previously almost exclusively controlled by prediction market rival Polymarket.
Tokenization Could Cause Further Legal Issues For Kalshi
A more anonymous way to trade through tokenization is not likely to sit well with state regulators. In fact, the move goes against Know Your Customer (KYC) policies. These well-established policies are used by financial institutions as well as regulated sportsbooks across the US to prevent fraud and to identify suspicious activity.
KYC protocols identified potential gambling abuses by Jontay Porter, Terry Rozier, Emmanuel Clase, and Luis Ortiz. Tokenization would either make it incredibly difficult or impossible to identify these possible gambling abuses.
Again, that fact will not sit well with regulators who are already battling to remove Kalshi from their jurisdictions.
Worsening Legal Picture For Kalshi
Those legal battles are trending negatively for the company. Recently, Kalshi lost its preliminary injunction in Nevada that protected it from the Nevada Gaming Control Board (NGCB) from enforcing state gaming laws (ie, removing it from the state).
The NGCB has already successfully forced Crypto.com and Robinhood out of the Silver State, arguing that sports event contracts are illegal gambling.
That was the second time Kalshi had failed to secure a preliminary injunction against a state regulator requesting it to cease and desist activities in a given jurisdiction. Maryland was the first state to deny Kalshi a preliminary injunction.
Kalshi believes that its Commodity Futures Trading Commission (CFTC) license allows it to operate across the US and supersede state-level regulations. Regulators are pushing back, saying Congress did not intend for event contract trading to include sports gambling, which is the sole jurisdiction of the states.
Kalshi has appealed the decisions in Nevada and Maryland. It also has pending lawsuits in New Jersey, New York, as well as Massachusetts.
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